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Experts tip housing rebound
Australian Financial Review | 10 October 2008
House prices have already bottomed, analysts say, and there is little expectation the serious downturns seen in some overseas housing markets this year will be repeated here, despite the global economic turmoil.
This week's shock I percentage point rate cut and the tightness of supply within the market were just some of the fundamentals that had put a floor under house prices, said Citigroup's director of economic and market analysis, Shane Lee, whose economic modelling has forecast a 4 per cent rise in prices in 2009 followed by an increase in value of about 10 per cent in 2010. Mr Lee said while further interest rate cuts would help the property market, he was not predicting boom conditions similar to those experienced in 2002 and 2007.
"We know interest rates are coming down and the cost of servicing debt is getting cheaper, so we'll see fewer foreclosures and less downward pressure on house prices. If interest rates were stable or increased further, then I wouldn't expect to see growth in the market," he said. “ The recessionary type of argument for Australia would probably stack up if the corporate sector wasn't in such good shape, but it is compared with the UK and particularly the US. Banks can still lend. There have been some cutbacks to some sectors, but we are entering a period of debt consolidation and fairly modest house-price growth."
RP Data property research analyst Tim Lawless said Australia's property market had passed through the lowest stage in the cycle and peak buying conditions would evaporate in the rust quarter of 2009. He said the country's supply and demand imbalance, with record migration growth and flat dwelling commencements, had created a natural floor for prices.
"When we look at the cycles we start to see the bottom of the market when interest rates start falling," he said. "This week's cut was a clear indication that the monetary policy is changing and the peak buying conditions in the marketplace won't be around for too much longer with more buyers coming into the market We expect it to be a gradual process.
With more buyers in the market prices will eventually start to rise." But not all analysts agree, with others such as Morgan Stanley analyst Gerard Minack forecasting house prices could fall 30 per cent or more by 20 I0 if economic conditions turn sharply worse. He has predicted that if this happens, high levels of individual debt coupled with rising unemployment would cause a number of forced sales and put downward pressure on prices.
Real Estate Institute of Australia president Noel Dyatt said Australians prioritised home ownership and did what they could to hold onto their homes. "Instead of seeing a wholesale price drop, I can see a significant slowing in the market.
But I think people will dig in and try to ride through this turmoil however long it's going to go," he said. "The rate cut is going to help a lot of people consolidate and take the pressure off. "There's still going to be people possibly beyond salvation, but the rate cut will give people some incentive to come into the market and without doubt there are still people wanting to buy homes."
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